After Rallying More Than 100% in the Past Year, is Innovative Industrial Properties Still a Buy?

Innovative Industrial Properties (IIPR) is a Wall Street darling with seemingly endless potential. This real estate investment trust (REIT) acquires and manages large properties used for growing medical cannabis. IIPR leases these sites to state-licensed cannabis growers.

Based in San Diego, California, IIPR has rallied more than 100% in the past year alone. However, IIPR's success is somewhat attributable to the lack of competition. Fast forward half a decade into the future when marijuana use is socially acceptable throughout the vast majority of the United States, and IIPR might not have nearly as much market share as it does now.

Add in the fact that cannabis laws are changing with each passing year, and there is also the potential for medical and recreational users across the land to grow their own greenery. In short, the future is uncertain for IIPR. Below, I reveal whether the stock is a Buy, Sell or Hold.

IIPR Points of Note

IIPR is trading at $249.41. The stock has a 52-week high of $253.61, and a 52-week low is $112.25. The stock's beta of 1.45 indicates that it is 45% more volatile than the market. In addition, IIPR's forward P/E ratio of 37.57 is also high.

IIPR climbed more than 14% in August alone. The company's impressive second-quarter results combined with the nearly society-wide push to legalize medical cannabis has led to considerable investor support in recent weeks and months. IIPR's second-quarter earnings reveal earnings per share and year over year revenue jumped 60% and 101%, respectively.

IIPR's dividend has the potential to increase in the quarters ahead, possibly reaching the same level as other REITs, mainly because its adjusted funds from operations jumped nearly 40% on a year-over-year basis. A meaningful increase in this metric is a sign that dividend alterations might be on the way. If IIPR hikes its dividend from the current 2.2% to 4% or higher, even more money is likely to pour into the stock.

The Analysts' Take on IIPR

The Street insists IIPR's revenue will soar more than 70% in the third quarter. Analysts also anticipate IIPR's earnings per share will jump 35% on a year-over-year basis. However, those who put in the time necessary to research IIPR's analyst price targets will find they are actually quite bearish on the stock, primarily because it climbed so high so quickly. The stock's downside potential is -30.98%. If the analysts' predictions come true, IIPR will drop to its average target price of $172.

However, it is important to note the stock's average upside potential across the past half-year based on analyst target prices has been 13.07%. In this period of time, IIPR's average analyst price target has increased by $65.10.

IIPR POWR Ratings

IIPR has an overall grade of C, translating into a Neutral rating in our POWR Ratings system. IIPR has D grades in the Value and Sentiment components of the POWR Ratings and C grades in the Momentum and Quality components. Investors can find out how IIPR grades in the Growth and Stability components by clicking here.

A total of 23 stocks comprises the REITs - Industrial industry. IIPR is ranked fourth-last, slotting in at 20th overall. If IIPR had not more than doubled in the prior year, its Value component grade would undoubtedly be higher, possibly propelling the stock into the top half of its REIT industry. You can find the top stocks in the REITs – Industrial industry by clicking here.

Where Does IIPR go From Here?

Watch IIPR closely in the next quarter or two. If IIPR shareholders take their profits off the table in the weeks and months ahead, the stock could move back toward a more reasonable price, bumping up its Value component grade. However, at the moment IIPR is not a Buy.

IIPR shares were trading at $241.65 per share on Friday morning, down $2.15 (-0.88%). Year-to-date, IIPR has gained 33.92%, versus a 21.37% rise in the benchmark S&P 500 index during the same period.

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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